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Viacom (VIA)
Viacom Profit Falls 69%, But Remains Optimistic
In this crazy economy, everyone has realized that consumers are altering their spending habits. When money is tight, it is understandable that non-essential items will get removed from the family budget. So it was obvious to analysts and investors that Viacom, a large media conglomerate, would experience a significant decrease in profit last quarter; and, as projected, that's exactly what the company reported this morning. But despite the seemingly bad news, Viacom's stock is actually up in early morning trading, and has analysts calling the news "relatively decent." What has allowed the company to remain so optimistic despite such a large drop in profits?
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The earnings report was just as bad as everyone anticipated. Viacom's fourth quarter profit fell a whopping 69%, falling from $559 million to $173 million. Excluding some restructuring charges, earnings per share fell to 76 cents, only a couple pennies shy of estimates. The $454 million restructuring charge includes some write-downs, and also severance costs for the approximately 7% of the workforce that is being cut. Revenue was flat from the previous year, holding steady at $4.24 billion.
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On top of that, many divisions of the company are struggling. Ad revenues for networks including MTV and Nickelodeon have fallen, as have television licensing fees. Home entertainment revenue, including DVD sales, fell 6% last quarter, likely losing out to cheaper movie rentals from Netflix (NFLX: Charts, News, Offers) and others, a trend that has been experienced by many other companies as well. Even the popular video game Rock Band wasn't able to rise above the rest, showing only flat sales for the quarter.
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And yet, Viacom executives are staying positive. The CEO of Viacom acknowledged that "Our fourth-quarter results reflect the realities of a challenging economy." Media and entertainment are by no means necessities, and since some companies haven't been able to survive the challenging times, Viacom is likely relieved to at least still be turning a profit. And while some divisions are faltering, some are still doing quite well. Probably the most promising area for Viacom has been theater revenue, which rose 28% this past quarter, partly on strong sales for both "Madagascar 2: Escape to Africa" and "The Curious Case of Benjamin Button."
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All of the popular media companies, including Walt Disney Co. (DIS: Charts, News, Offers), News Corp. (NWS: Charts, News, Offers), and Time Warner (TWX: Charts, News, Offers), have been going through the same situation, and unfortunately it's looking like the outlook isn't changing anytime soon. Viacom is demonstrating, however, that they won't give up. The company is laying off employees in areas where the company is being unprofitable, and pushing the parts of the business that are doing well. They've realized that as trends shift, they need to come up with new ways to compete, which has brought them to consider a new idea of creating an online movie channel, hoping this will help cause customers to stay. At this point, it seems that as long as Viacom continues to at least meet expectations, investors will maybe consider Viacom not as the biggest celebrity, but at the very least, a rising star.
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